Occupational licensing

Occupational licensing is the process of obtaining permission from a government to practice a profession or trade. According to S. David Young, "today at least a fifth, and perhaps as much as a third, of the work force is directly affected by licensing laws" in the United States. [1]

Some of the occupations licensed in this way (e.g. cab drivers) were significantly impacted by the so-called "sharing economy".

Contents

Growth of occupational licensing in the USA

According to Morris M. Kleiner and Alan B. Krueger, during the early 1950s, less than 5 percent of the U.S. work force was covered by licensing laws at the state level. That grew to almost 18 percent by the 1980s—with an even larger number if federal, city and county occupational licensing is included. By 2000, the percent of the workforce in occupations licensed by states was at least 20 percent.[2] By 2008, the share of workers requiring a license to work was estimated to be almost 29 percent.

In the early 1990s the Council of State Governments estimated that about eight hundred occupations were licensed by at least one state. By 2003 the Council of State Governments estimated that more
than 1,100 occupations were licensed, certified, or registered in at least one state.

At the beginning of the twentieth century, physicians, dentists, and lawyers in most states were required to obtain a license before they could practice. Following World War II the number of licensed occupations continued to expand as more occupations became well organized. Much of this growth has come from medical services: about 76 percent of non-physician health-service providers must have a license in order to work. However, despite the rationale for public health and safety, the rise of licensing for the vast majority of licensed occupations has come mainly at the behest of professional associations, not consumer advocacy or public interest groups. Licensing rules brought about in this manner often "grandparent" current practitioners and allow them to practice without their having to meet the new requirements, suggesting that licensing criteria are not imposed solely with the health and safety of consumers in mind. There are some cases where a government entity imposed regulation, usually as a result of perceived corruption. For example, stockbrokers were brought under federal regulation in response to the financial scandals that grew out of the crash of the stock market in 1929 and subsequent depression.[3]

Prevalence in the EU

Based on information gathered in 2012 from the then twenty-seven nations in the European Union (EU), between 9 and 24 percent of European workers were subject to occupational licensing, which translated to between 19 million and 51 million individuals.

Similar to U.S. states, the extent of occupational licensing varies widely across countries in the EU: Bulgaria, Estonia, Finland, France, Ireland, Latvia, Lithuania, Malta, the Netherlands, Romania, and Sweden all have less than 15 percent of their workers covered by occupational licensing. Regulation is much more prevalent in other countries, however: at least 25 percent of the workforce in Denmark and Germany, for example, is regulated, and rates are also high in Italy and Spain.[3]

Effects

According to Morris Kleiner, occupational licensing has either no impact or even a negative impact on the quality of services provided to customers by members of the regulated occupation. Additionally, as occupations become licensed, members of regulated occupations see their earnings go up.[4]

Studies have shown, for example, that more-difficult requirements to earn a dental license (in the form of the pass rate of the required exam) do not lead to improved dental outcomes of patients but do result in higher prices of basic dental services, likely because the requirements result in fewer dentists. Similarly, more-stringent licensing of mortgage brokers has no influence on the number of foreclosures, but does lead to higher prices of mortgages, again likely due to fewer providers of the service.

Other studies have found that occupational licensing improves the employment prospects of licensed workers and can raise their wages by as much as 15 percent and enhance other benefits such as health coverage and pensions. These benefits are similar to those of unions.

A number of studies also finds that the wage benefits of licensing are concentrated primarily among individuals who are already in relatively well-paying occupations. For occupations associated with both higher education and higher income and that are mainly in the private sector, such as physicians, dentists, and attorneys, licensing appears to have large effects by limiting entry or making it more difficult for an individual to be hired for a job in another state. However, for other occupations, including teachers, nurses, and cosmetologists, the impact of licensing on earnings is murky, with some studies finding small effects and others finding none. The influence of occupational licensing on employment growth takes place more gradually, but research findings suggest that states that license a certain occupation experience slower employment growth in that occupation relative to the same occupation in states that do not require a license.[3]

Economic views

Occupational licensing was a problem in 1776 when Adam Smith wrote in The Wealth of Nations:
"The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property."[5]

Mises Institute scholar Michael Rozeff states:
"In the shorter term, the interest groups use the state against the public. In the longer term, the state and its bureaucrats rule the roost. In the end, the government bureaucracies expand."[6]